Commentary: How market’s sectors tend to do prior to tops
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) — A top in the stock market may be closer than you think.
That, at least, is the disturbing conclusion that emerges from an analysis of the relative performance of the market’s various sectors prior to tops. The sectors that typically shine during the last months of a bull market have done quite well in recent months, while at least some of the sectors that typically do poorly have been struggling.
In drawing this conclusion, I am relying heavily on a study conducted early last year by Ned Davis Research, entitled “Leading Sectors For Calling Bull Market Peaks.” The study focused on performance over the last three months of each stock bull market in the U.S. since the early 1970s.
The study’s finding: “Financials and utilities have tended to underperform in the months leading up to bull market peaks, while consumer discretionary and consumer staples have outperformed.”
Unfortunately, in the case of 3 of these 4 sectors, returns over the last three months are consistent with a top being formed. (The table below reports returns, courtesy of FactSet.)
